Photo: Bloomberg
Photo: Bloomberg

ONGC to invest $5 billion in two Krishna Godavari basin fields

The two fields are forecast to yield 50 billion cubic metres of gas and 23 million tonnes of crude oil over their lifetime

New Delhi: In the first major investment after the government’s offer of free market pricing for natural gas extracted from deep-sea blocks, state-owned Oil and Natural Gas Corp. Ltd (ONGC) on Monday said it will invest $5 billion ( 34,000 crore) over the next three years in two fields in the Krishna Godavari basin.

The two fields are forecast to yield 50 billion cubic metres of gas and 23 million tonnes of crude oil over their lifetime.

The areas of the KG DWN 98/2 block to be developed will enjoy the best of both the contractual terms applicable to the field auctioned to ONGC in 1999 as well as the pricing freedom for existing gas discoveries announced on 11 March under a new policy aimed at encouraging investments.

ONGC chairman and managing director Dinesh K. Sarraf said that as per the contractual regime applicable to the field, the company can recover the cost of oilfield development before beginning to share profits with the government.

The specific parts of the block to be developed—clusters 2A and 2B—are not close to Reliance Industries’ D6 block, with which ONGC is said to have a porous border that allows gas to flow across. Sarraf said the company has not made any decision regarding developing cluster 1, which borders the Reliance block. ONGC has an ongoing dispute with Reliance regarding apparent flow of gas from its field to that of RIL’s.

ONGC’s director finance A.K. Srinivasan said he anticipates revenue to go up by $1,896 million and profit after tax by $585 million in 2020-21 as a result of oil and gas produced in the cluster. At peak production, the two clusters will yield 77,305 barrels of oil per day (bopd) and 16.56 million metric standard cubic metres a day (mmscmd) of gas. The company seeks to start production of gas from June 2019 and oil from March 2020.

“Within three weeks of the government announcing the new gas pricing policy, we were able to process everything and the board of directors could make the investment decision," Sarraf said. The company will pay 5% royalty to the cental government for the first seven years on the hydrocarbon to be produced from the deep water block and 10% thereafter.

“Besides, the project is exempt from customs and excise duty on capital goods used," he said.

ONGC recorded an output of 25.9 million metric tonne (mmt) of crude oil and 23.52 billion cubic metres (bcm) of gas in 2014-15. According to Vivek Jain, associate director with credit rating agency India Ratings and Research Pvt. Ltd, the recently announced pricing freedom for natural gas to be produced from deep water, ultra-deep water, high pressure and high temperature areas makes the policy intent very clear to businesses—that the government is keen to attract investments in the energy sector. “The immediate impact of pricing freedom for gas is a revival of stalled projects. Fresh investments into exploration can be expected in due course," said Jain.

India, which currently imports over 190 million tonnes of crude oil—more than 75% of its requirement—is keen to reduce the import dependence by 10 percentage points by 2022. It is also keen to enhance the use of natural gas, a cleaner fuel, in power generation, transportation and in industries like fertilizer, cement and steel in a bid to cut down on carbon emissions.